"We are far from overcoming the growth weakness."

At the Epiphany meeting of the North Rhine-Westphalian crafts sector, economist Justus Haucap spoke about necessary measures to end the economic slump in Germany.

"We are in a deep structural crisis." This was the statement made by Andreas Ehlert, President of the North Rhine-Westphalia Chamber of Skilled Crafts, at this year's Epiphany meeting. Crafts.NRW "Government spending is rising, debt is increasing, competitiveness is declining, social security systems are coming under increasing pressure, and at the same time, many citizens' trust in the state's ability to act is dwindling." This is a dangerous mix that not only threatens the economy but also democracy.

Andreas Ehlert. Photo: © Paul Schneider / Handwerk.NRW

Ehlert called for a modernization of the state with clear rules. At the same time, regulations for businesses should not be geared towards large corporations, but rather towards small businesses, which would otherwise easily be overwhelmed. "We need a new administrative culture," he said. "An administrative culture that shows less distrust towards those involved, that trusts more, that provides clear sanctions for bad actors, but more freedom for the vast majority of businesses that honestly go about their work every day." And this, he emphasized, is not about technical details, but about fundamental questions of economic policy.

Growth weakness not yet overcome

Justus Haucap began his presentation "Germany as a Business Location: How Do We Overcome Weak Growth?" with good news: The economist from the Heinrich-Heine-University Dusseldorf The report described a "gentle upward trend" in the business climate and a "noticeable leap" in the competitiveness of the business location. The bad news: no positive development has yet been observed in the growth of the gross domestic product. Despite isolated small growth rates, the economic weakness is far from over.

"Our gross domestic product has essentially remained at the same level as in 2019. For almost six years, we haven't had any growth in Germany," explained Haucap. Many European countries are experiencing higher growth with significantly lower debt levels. "Do we absolutely need more debt to get back on a growth path?" he asked. In Denmark and Switzerland, for example, the infrastructure is in good condition without the countries having to take on excessive debt. "So that means there's clearly quite a bit we can improve."

No sustainable growth

Economic growth, estimated to be between 1,3 and 0,9 percent this year, cannot be considered sustainable, as it is partly due to holiday effects and, in particular, to increasing government spending. "Private investment is declining, but there is some hope that it might pick up if government investment is now stimulated." However, it is unclear whether the private sector will automatically be able to invest more, because capacities are limited in some areas.

Increasing protectionism is particularly damaging to Germany because of its export dependence. "That makes it all the more important that we try to conclude free trade agreements wherever possible," Haucap emphasized. In contrast, Germany is import-dependent when it comes to energy, unlike China or the USA. The competitiveness of industry will suffer so much as a result that a certain degree of structural change is to be expected, not only in Germany but throughout Europe.

Climate protection leads to a loss of prosperity.

Haucap questioned whether it was right that energy policy in Germany is particularly focused on climate protection. "It is economically undisputed that, globally speaking, slowing down climate change is far better than bearing the brunt of it, not only for ethical reasons, but also economically." However, Germany is responsible for an extremely small share of global greenhouse gas emissions (1,2 percent), and the EU as a whole for around six percent. The USA (just under ten percent) and especially China (around 25 percent) are significantly higher.

Reducing Germany's emissions to zero by 2045 would have no global impact. Energy policy in Germany has already led to a loss of prosperity over the past five years. Therefore, it is unlikely that other countries would find this strategy attractive. "In fact, it could be highly counterproductive, and others will say, 'The Germans have shown us that if we invest heavily in climate protection, we have to sacrifice prosperity; we'd rather not do that.'"

What does Germany need?

To strengthen Germany's economic position, reducing bureaucracy is urgently needed. This will take some time. The pension reform is headed in the wrong direction. "What we've decided on are essentially various types of pension increases. We're financing all of this through taxes. We're definitely on the wrong track there. I also don't see any comprehensive reform yet in energy and climate policy." The tax reforms are too timid. The boost for depreciation and then the corporate tax reform might have some effect, but whether this will stimulate investment is doubtful.

"We need improvements to both the tax and regulatory conditions for business investment. We need to strengthen the labor supply. On the one hand, we incentivize early retirement, while on the other hand, we try to get retirees to continue working." Germany needs an increase in energy supply, ideally through stronger European integration. We need better, internationally coordinated climate policy. We have pursued far too much national climate policy. We must change that so that climate protection and prosperity are better linked."

"Germany needs confidence"

Haucap also called for an ambitious digitalization policy and the modernization of public infrastructure. The autumn of reforms had failed to materialize. Germany needed confidence, but without reforms, it would not return. "If you're in a boat with a hole in it, singing loudly won't help. You have to plug the hole. And it's the same with the economy. We now need to adjust the framework so that the economy can thrive again in Germany."

DHB now also digital!Simply click here and register for the digital German Crafts Journal (DHB)!